Nufarm Limited (NUF) Earnings Call Transcript & Summary

Hello, and welcome to the Nufarm First Half 2023 Results Conference Call. I would like to advise all participants that this call is being recorded. Thank you. I'd now like to welcome Greg Hunt, CEO, to begin the conference. Greg, over to you.

Thank you, Connie, and good morning, everyone. Welcome, and thank you for joining us today. I'm joined on today's call by our CFO, Paul Townsend, and also joining us Rico Christensen and Brent Zacharias, who will take this opportunity to provide an update on the progress that we've made in the half towards our longer-term growth aspirations. But before we start, I'd like to draw your attention to the disclaimer on Page 3, particularly the section on forward-looking statements. I'm pleased to report a strong result and a positive start to the financial year for Nufarm. Revenue and EBIT were relatively steady, while our underlying net profit increased by 7%. We achieved underlying EBITDA of $316 million. This is an excellent result, considering we're coming off a record year, and I'm pleased to say that we are on track to meet our full year earnings guidance. Importantly, during the period, we made progress and remain on track to meet the key milestones that we have committed to as we work towards our FY '26 growth aspirations. Given the strong results and positive outlook, we are pleased to announce an increase in the interim dividend to $0.05 a share. A number of factors are driving our performance. We launched a number of new products across our crop protection platforms that contributed to the gross margin improvement. This is an important part of our growth aspirations. As I said earlier, Rico will provide further detail in relation to those launches and the overall health of our pipeline. Seed Technologies delivered a very strong result, with revenue and earnings up 25% and 34%, respectively. The strong contribution from seeds and the improved product mix across the portfolio has resulted in gross profit margins expanding by 120 basis points in the first half. We have reported an increase in inventories and working capital, particularly in North America. Inventory is expected to reduce in the second half, as we see more traditional supply-demand patterns returned. We also anticipate leverage to be within the targeted range of 1.5 to 2x net debt to EBITDA by the 30th of September 2023. Our balance sheet is robust and remains flexible. Favorable seasonal conditions have been experienced in most of the key markets that we operate in, and we are seeing good demand for our seed and crop protection solutions in early second half trading. We remain on track to deliver modest earnings growth for the full year. Moving to next slide. Here, you can see that we've made a lot of progress and continue to hit key milestones as we execute on our strategic objectives. Crop Protection, as I mentioned earlier, is benefiting from successful product launches and driven by strong relationships with our technology partners. The Sumitomo commercial relationship remains strong, with the renewal of all of our marketing and distribution agreements now complete. Our Seed Technologies platforms continue to make progress, with new hybrids achieving growth across multiple markets. We're also well on the way to deliver a minimum 16,500 metric tons of our Omega-3 canola oil from 2023 crop plantings. A very positive development during the period was the news that the Norwegian Scientific Committee has given a positive recommendation regarding canola oil enriched with Omega-3 for fish feed. The Norwegian aquaculture market is the largest in the world. So this represents a very large potential opportunity and another milestone achievement towards our growth plans. Likewise, our bioenergy aspirations remain on track as we delivered our first shipment of carinata oil under the long-term supply agreement with BP. And as we forecast in November, we are working towards our goal to double the hectares planted of carinata in 2023. Argentina has experienced drought conditions, so we are focusing on expanding the area in other countries to try and offset any shortfall that we may experience in Argentina. In summary, executing on these milestones leaves us well placed, as we work towards achieving our FY '26 revenue aspirations. Turning now to the segment results; we've included this table because it simply gives you an insight into the strength and the diversity of our business, our geographic footprint and growing contribution from our seed technologies helps us to minimize risk and reduce volatility, while providing a clear platform for growth. Moving now to Europe, where we delivered a very positive result with revenue and earnings growth. This was achieved despite a EUR 17 million decrease in revenue from product deregistrations. The performance was driven by new product introductions, organic growth and improved gross margins. And much of this is coming from the portfolio that we acquired in 2018. We continue to deal with some challenges at our site in the U.K. However, these issues will be progressively addressed through the CapEx program that we announced in February of last year. We expect some benefit due to the delayed season in North and Central Europe, with sales shifting into the second half. However, this will be somewhat offset by drought conditions, which are persisting in Spain. We expect deregistrations to impact revenue by a further EUR 4 million to reach the EUR 21 million already flagged for the full year. However, we believe that we can offset the revenue impact, with what is in our current portfolio, organic growth and new product introductions. Assuming normal seasonal conditions, we are on track to deliver a result slightly above last year's. APAC experienced a solid first half, particularly on the back of the record contribution in the first half last year. As expected, revenue and earnings were impacted by some softening in active ingredient pricing, particularly glyphosate. As explained at the full year, restocking has occurred at lower prices, resulting in no additional provisions required at the 31st of March for inventory that we held at that date. During the year, we launched a number of new and higher-margin products, and each of these contributed positively to the result, and we would expect that this will be a continuing pattern in future periods, as the mix of the portfolio continues to change. In the short term, we are seeing continuing favorable conditions, with good early rainfall. These conditions and relatively higher grain prices are resulting in continued strong demand for our crop protection products and current trading is in line with what we experienced at this time last year. Turning to North America, where the result was impacted by a shift in sales from the first half to the second half, as customers move to a more in-season purchasing. A reduction in sales resulted in revenues down by 12% and higher inventories. Increased sales of higher-margin products, boosted gross margins have helped offset, to some extent, the volume decreases. And despite this, the outlook remains very positive. Forecast from the USDA for 2023 show that acres of corn and soybean and wheat are expected to expand. In addition, 65% of the corn, 49% of the soybean and 35% of the cotton crop has been planted as at the 14th of May, and conditions remain favorable with adequate to above adequate soil moisture across 80% of the area planted. Combined with agreements that we have in place to reduce our exposure to the pricing volatility on lower-margin products, we are confident of a strong second half in North America. On the Seed Technologies, I really covered most of the points that I wanted to make in my earlier comments. However, we are on track for a stronger second half. And I'll just probably reinforce the point that -- again, that Seed Technologies provides a very exciting and meaningful growth platform for the company. This result continues the earnings momentum that has us on track to meet or exceed our FY '26 aspirations. Brent will talk to our current programs and our growth aspirations over the next few years later in the presentation. I'll now hand over to Paul, and he'll take you through the details on the financials. Thanks, Paul.

Thanks, Greg. Now turning to more of the details surrounding the financial performance. Revenue is slightly down by 1% as Greg has covered and underlying gross profit margin up 122 basis points, reflecting improved sales mix, the introduction of new higher-margin products across the regions, and increased contribution from Seeds Technologies, which is higher relative to gross margins. An excellent result giving manufacturing cost increases and manufacturing disruptions. Although underlying gross profit is up by 3%, underlying EBITDA at $316 million is 4% down and reflects higher SG&A and R&D costs of $26 million and $4 million, respectively. The main SG&A cost impacts being increased in headcount and other costs to support the growth in Seeds Technology segment. CPI and salaries and incentive increases, increase in freight and warehousing costs associated with holding increased inventory volumes and increased travel, as we come out of COVID. Underlying EBIT of $228 million is 3% higher than the corresponding period, reflecting the lower depreciation amortization due to the phasing out of products and regulatory extensions of certain products into main Europe, together with delayed plant and equipment CapEx across the company. Underlying NPAT is up 7%, reflecting the higher EBIT and lower effective tax rate, despite higher financing costs. The underlying tax rate has improved half-on-half due to Nufarm's continued strong financial performance, which has enabled the recognition of unbooked tax losses through the P&L. Underlying financing costs have increased half over half, mainly due to increases in floating base interest rates on drawn debt facilities, together with higher drawn debt levels. Average net working capital sales is still below our target range of 33%, increasing by 6 percentage points, coming off an abnormally low percentage level 27%, the first half of financial year 2022. Net debt has increased to $1.04 billion, with leverage now 2.5x, reflecting the negative cash outflow for the half. We see these debt levels and leverage as temporary only, with leverage anticipated to be below or within the target leverage range of 1.5 to 2x by 30 September, 2023. Basic earnings per share has increased by $0.02 per share from $0.34 to $0.36 per share, and the Board has declared a dividend of $0.05 per share, up from $0.04 per share for the prior corresponding period. Now turning to cash flow; importantly, the net working capital balances have been relatively low over the past 2 years, driven by lower levels of inventory, which have been impacted by supply chain disruptions through the COVID period. Net operating cash flow of negative $559 million, the first half '23, is predominantly driven by EBITDA and the movement in net working capital. The net working capital movement being a significant factor in driving operating cash flow and outcomes, in particular, movements in receivables and growth in inventory. As can be seen on this slide, the operating cash flow each half is typically significantly lower and/or negative in the first half than the second half, reflecting the seasonal build and unwind of net working capital. Essentially, higher receivable collections in the second half compared to the first half due to the seasonality of Nufarm sales. Although there is seasonality in the current net working capital movement, resulting in higher net working capital in the first half compared to the second half, this has also been impacted by the higher stock levels Nufarm is carrying, and more specifically, the higher stock levels in North America, together with receivables coming off at normally low levels second half of '22. I'll now turn to the next slide. This illustrates the composition of the net working capital balance over the last 5 halves. This slide illustrates how the composition of net working capital changes between the halves. As I said, the big move in the receivables balance between 1H '22 and 2H '22 resulted in unusually high receivable collections. Through customer prepayments and improved collections, as customers sought to shore up supply, given stressed supply chains during that period. This was highlighted at the time of the FY '22 result. Whilst this led to an excellent net working capital outcome for financial year '22, the movement back to a normal level of receivables in the first half '23, has exacerbated the overall net working capital movement reported in first half '23. In the second half '23, however, consistent with prior periods, we expect receivables to unwind relative to first half levels. For example, in applying an historical sales and collection profile could lead to a movement or cash inflow of $200 million to $300 million in H2. The other big component of the net working capital movements is in our inventories. Inventory levels throughout FY '21 and 1H '22 were particularly impacted by COVID-related supply issues. Towards the end of FY '22, we were able to restock inventory and build up a safety buffer, as supply chains started to lease to support anticipated customer demand, ensure we were well covered ahead of the season. Our inventory levels for the first half '23 reflect these decisions that have also been impacted in North America by customer led decisions to hold back orders to a more just-in-time basis, as opposed to advanced ordering, which we experienced over the past couple of years. We maintain our confidence that this is largely a timing issue and that inventories will reduce, since agriculture fundamentals remained strong, soft commodity prices being at or above 5-year averages and planted acres in the USA expected to increase, resulting in more normalized customer buying behavior. Importantly, we expect this level of net working capital reduced as receivables and inventories unwind, resulting in cash flow generation in H2 '23 to bring leverage down to below or within our target range of 1.5x to 2x by 30 September, 2023. By way of example, as of May 16, we've already seen a net reduction in Group's inventory of approximately $120 million, which is a good indicator that inventory is trending to where we would like it to be by the end of the half. In terms of CapEx spend in the half, there are essentially 3 elements being investment CapEx, tangible spend and property, plant and equipment. The investment CapEx includes a small boom sprayer acquisition for our Croplands business in Australia. Further investment in Enko, and deferred consideration for the Biovertis energy cane acquisition. The intangible product investment spend includes both an element of stay in business and growth spend. For crop protection, this includes spend associated with maintaining and defending product registrations, new products and product enhancements. But Seed Technologies spend is associated with new hybrids, registrations in new markets and other regulatory investment. The property, plant and equipment spend includes a number of safety and environment initiatives together with asset integrity investment, and majority in Wyke, to improve the overall reliability and efficiency of our manufacturing facilities. Further investments expanding the capacity of propionics and Preventol in Wyke, formulation improvements in Chicago Heights, together with 2 4D efficiency spend in APAC is included in the spend as well. You may recall, we have earmarked circa $100 million in addition to normal maintenance or stay-in business type CapEx over FY '22 to FY '24. In total, $80 million to $90 million per annum in property, plant and equipment spent over that period. Labor shortages and raw material available in the mine has delayed the execution of these projects, which will impact the overall timing of the FY '22-'24 initial plan. Just a reminder, all growth investment spend is assessed in accordance with our capital management principles, where we target a return greater than Nufarm's weighted average cost of capital. The full year outlook for CapEx is around $200 million to $220 million, which includes carryover of $30 million from 2022. As mentioned, net debt has increased to $1.04 billion with leverage at 2.4x net debt-to-EBITDA. As previously mentioned, the increase in net debt is mainly due to increases in net working capital during the half, with leverage anticipated to return to within or below the target range of 1.5x to 2x as net working capital unwinds in the second half. In terms of debt facilities, during the half, it was announced that Nufarm has entered into a 5-year $800 million revolving asset-based lending credit facility secured against trade receivables and inventory. A smaller $150 million liquidity facility has also been established to sit alongside the ABL facility to assist in the ongoing funding of Nufarm's working capital requirements. Complementing the $350 million senior unsecured notes, which were issued in January 2022, the ABL facilities delivers considerable benefits for Nufarm's capital structure, transitioning Nufarm to a covenant-like financing structure and extending the duration of the Group's debt maturity profile. In fact, with the increase in the group's net working capital balances over the half, Nufarm's new working capital debt facilities are delivering on their objective to enable a flexible and durable capital structure through operating cycles and variable trading conditions. In terms of liquidity, Nufarm has access to undrawn debt facilities of $319 million and access to cash of around $348 million as at 31 March, 2023. With increases in base floating rates and higher average debt levels, interest expense is expected to increase in the second half '23 compared to [indiscernible]. I will now hand back to Greg.

Thanks, Paul. Before I hand over to Rico and Brent, I just wanted to quickly take the opportunity to remind you of the broader macro trends and why we believe that this is an attractive industry. Agriculture is the primary source of food and therefore, plays a crucial role in feeding a growing population. With the global population continuing to increase every year, we need to produce more food to feed everyone. Importantly, advances in technology and science have enabled farmers to increase their yield and reduce waste, which is crucial for meeting the needs of the ground population. At the same time, there is increasing pressure to meet our food needs more sustainably and advances in technology and science are rewriting the way that we use land and plants to supply food and nutrients. Increasingly, agriculture and oilseeds will also play an important role in energy production, as they will be used to produce renewable fuels. The use of sustainability-certified renewable fuels reduces our dependence on fossil fuels, lowers greenhouse gas emissions and provides economic benefits to farmers by creating new crops -- or sorry, for creating new markets for their crops. Additionally, the cultivation of cover crops can contribute to sustainable agricultural practice, sequester carbon, reduce erosion, and improve soil health. And Nufarm is at the front of these changes, and a larger part of that is about our focus on innovation and technology. We believe demand for our products will continue to grow and drive our revenues and our margins. And it's this belief that is driving the investments in our various platforms and our future growth aspirations. As I've said before, we remain on track to meet or exceed those aspirations, which we first outlined in February of 2022. We are executing on the key milestones that underpin those aspirations. And we'll now hear from Rico and Brent, who will give you some more detail on what we've actually achieved over the past few months. I'll hand first to Rico to talk about crop protection.

Thanks, Greg. As Greg mentioned earlier, Nufarm is contributing to and also benefiting from the shift to more sustainable and innovative agricultural solutions. We are enabling our growers to produce more with less, while providing products that help them adapt to climate change and minimize unintended environmental consequence. Innovation and technology will drive Nufarm's sustainable growth, and we will now give you an update on our development pipeline, which we presented in February 22 at our Investor Day. We have a pipeline that will deliver across our core crops, our targeted geographies over multiple years and will continue to strengthen our customer relevance and support our revenue aspirations. Over the past year, our product launches performed as planned, and we are on track to launch the scheduled new product introductions for financial year '23. Our top projects have an estimated market size of $6.65 billion. You may recall that in February 22, the equivalent slide had 22 projects with a market size of $6.6 billion. In the almost 18 months that have passed, some projects have been launched in all markets and are, therefore, successfully closed. And at the same time, other new projects have been added, including some that will be launched after '26. On the next slide, I will share some examples of product launches, but the overall message is that we are on track to deliver our 2026 ambition and our pipeline also looks promising beyond that. During the first half, we launched a number of products. Bear in mind that our products generally have staggered launches, because we don't get the registrations at the same time in all countries. Products continue to be active until they have been launched in all target markets. As an example, we have now received the first registrations of Joust, but the project remains active since further launches are coming. Our portfolio consists of 5 platforms. The foundational products such as Joust, Galaxy and Terrain Flow are what we refer to as the bread and milk. They are products farmers use every season and are incredibly important to solve critical economic problems. However, as you know, we are increasingly investing in innovative solutions that are covered by IP. I'm pleased to let you know that we have achieved several important milestones for our innovative solutions. We launched our own IP protected drop zone in late '22 and received an incredible positive response from farmers across Australia. We also achieved registrations and launched a new easy across North America in collaboration with an important research partner. Lastly, we extended our distribution agreement for Terrad'or with Farm Hannong, another important discovery partner. In the biological space, we also achieved important milestones. Last year, we launched our bionematicide Trunemco in the U.S., and we have now also launched in Brazil together with 3 distribution partners. Brazil is the largest and fastest-growing market for bionematicides, and this was an important step for us. In Australia, we also launched a new biofungicide Intervene, which has been developed together with a strategic partner and have previously also been launched in the U.S. Our new crop project together with Crop.zone has also made good progress in the first half. We have now appointed partners in several markets and are working to add more. Lastly, I also wanted to mention Sealicit, which is a biological pod shatter reduction product for canola that we have developed with another strategic partner. This product will be part of the input platform, we have designed to support the ergonomic needs of our new seed Omega 3, canola and carinata programs. These are just some examples. In fact, we have had more product launches in the first half. Also, I want to highlight that generally speaking, these new products are higher margin products, and as such, contributors to the improvement in average gross margin in the first half. Altogether, we are quite pleased with the progress this first half, and as mentioned earlier, our pipeline is on track to deliver our 2026 aspiration. Now over to Brent.

Thanks, Rico. As Greg covered, we are very pleased with the performance of the Seed Technologies results. We are experiencing strong customer response to the innovation we are bringing to the market. We significantly outperformed the prior period in volume and revenue across our 3 core seed positions in canola, sorghum and sunflower, and we expanded revenue and margins in both the Bioenergy and Omega-3 platforms compared to the prior period. This result highlights the strength and synergy across all our technology platforms working together, the strong market adoption of those technologies and the very clear trajectory we are on to meet or exceed our 2026 aspirational growth targets. Now looking in more detail at the drivers of these first half results, our core seeds business continues to perform very strongly and remains the critical driver of our innovation, farm market presence and capability that enables our Omega-3 Nutrition and Bioenergy growth platforms. A strong seeds capability is a precursor for success in our value beyond yield technologies. In the first half, Nuseed achieved additional market expansion in canola in Australia and Latin America South. We grew volumes in our sorghum markets in Brazil, the USA and export markets and we expanded our sunflower position in Southwest and Central Europe, the USA and Latin America sales, which more than offset our choice to reduce sunflower volumes in Eastern Europe due to the conflict. On our Omega-3 platform, we saw the revenue and margin grow year-on-year due to the continued benefit of scale production and supply of Aquaterra. Pleasingly, customer adoption and supports in our initial market of Chile continues to be strong and the first half period saw initial sales to North American aquaculture customers. And we completed a successful planting trial in South Texas, which offers an important additional winter season production zone. On the regulatory front, as Greg mentioned, we made important progress on our planned Norway approval, and I will speak to that in more detail shortly. We also progressed commercialization plans for Nutriterra and see momentum building, both in food ingredients and with a high-value market segment opportunity developing around concentrated oils. We have developed, been granted patents and now commercially piloted the enrichment process to take our oil to higher concentrations that are of interest to the nutraceutical market. First half saw a number of important milestones achieved with respect to our bioenergy platform. Following the first dedicated shipment of new seed carinata to St. Paul and Europe production, BP took its initial deliveries of oil under our strategic long-term offtake and market development agreement. Production expansion continues, including new commercial scale planting activity in the Southern U.S., and we generated strong performance from a new hybrid variety and large-scale commercial harvest in Argentina, despite unusual impacts from drought and frost conditions. Our newly acquired energy cane technology was successfully integrated into Nuseed's Brazilian operations with additional resources invested in research and development, agronomy and commercial capabilities and Nuseed secured its first energy cane revenues in the first half. Looking ahead, we are confident that the drivers are in place, both internal and external, to support strong growth over the coming periods. For the seeds platform, that confidence is supported by the resilience of our core seeds positions and our ability to grow revenues through the cycle given our higher value niche market positions, strengthening market shares and a strong pipeline of new genetics and products. Our Omega-3 platform is at an important transition point, with greater scale and market expansion starting in FY '24 from larger FY '23 planting, driving revenue and margin growth for Aquaterra and new high-value market segments, presenting opportunities with Nutriterra. We also continue to see trends towards sustainability, tightening fish oil supply and price appreciation. As a very current example of that in the last 48 hours, the Peru Ministry made a public announcement that they have delayed and they have reduced or possibly cancel first, the typically largest anchovy fishery products. Coming back to Norway, while a number of key steps are still to be completed, we are positively progressing towards regulatory approval and market entry into Norway for Aquaterra. This represents a step-by-step growth opportunity in the world's largest salmon farming market. A final ruling from the Norwegian Food Safety Authority is anticipated within this current calendar year. The value indicators and demand for lower carbon energy feedstocks remain very strong and support our continued investment and rapid expansion of Nuseed carinata. Our ability to bring better performing genetics to the crop, with delivering important gains in agronomics and yield and will translate to stronger economics for Nuseed and our value chain partners. Similarly, we feel very confident in our investment in energy cane, as we have already started to expand our customer base with existing products and focus on the value that can be generated from the successful introduction of next-generation hybrids with industry. In the immediate future, we expect to achieve further growth in both seed technology revenues and EBITDA in the second half of this financial year. As in recent years, however, seed technologies remain strongly weighted to the first half. Over time, we will start to become more balanced between halves as Omega-3 and bioenergy platforms grow with more balanced year-round revenues. Longer term, we remain committed to and very confident that we will meet or exceed our aspirational growth targets by 2026. Thanks. I'll now hand back to Greg.

Yes. Thanks, Brent. I just thought it was important that we provide an update on our progress against our 2026 aspiration, as we execute against these important milestones that we've set for ourselves. And I guess, I'm hopeful that, as we continue to make progress, that your confidence grows in line with ours, that we will continue to deliver. So we've delivered, as I said earlier, what I think is a strong result for the half. Our outlook for the remainder of the year is positive, as we anticipate, continued strong demand for our products. Early trading in the second half has been encouraging, and we remain on track to deliver modest earnings growth in constant currency, underlying EBITDA anyway for the full year. Increased plannings and favorable seasonal conditions are driving demand for in-crop application, and whilst manufacturers generally have reported high inventories, channel stocks are relatively low, particularly in North America, where we are expecting to have a strong second half. This gives us confidence that our inventories will reduce over the second half and that our leverage at year-end, as Paul has taken you through, will be within our targeted range. We'll continue to invest in innovation and technology to create improved solutions for crop protection and execute on our growth aspirations to our Omega-3 and bioenergy platforms. Our goal is to help our farmers maximize crop yields, grow new markets for their crops, whilst protecting the land and its natural resources for future generations. We are committed to being a reliable partner for our customers, and we remain dedicated to providing innovative solutions that deliver results. So in summary, we have a clear plan for growth. We've shared our growth aspirations with you, and we are on track to meet or exceed these aspirations. We've delivered a very strong start to the year and are on track for another strong earnings result for Nufarm. So with that, I'll hand back to Connie and we'd be happy to take some questions.

[Operator Instructions] Your first question comes from the line of Evan.

Obviously, a pretty solid result in some volatile conditions here. Could we just give maybe a bit more of a detail around the grounds for all your regions, of what your second half expectations are? Maybe touching on price and volumes, et cetera, if you can?

Yes. Thanks for the question, Evan. I think there's been commentary around growing prices and how they've come off highs. But the point I'd make is that they remain at relatively high levels. So here in Australia, we're seeing expectations for another large winter crop, maybe not as large as it was in 2022. I think the point that I'd make is that our products are used as inputs, aware of the Bureau of Metrology forecast. But we really make our revenues at the time that the crop is planted or in the early post merger. So at planting and not at harvest. And as I said earlier, we're seeing demand for our products now similar to what we saw last year. So we would sort of expect, if conditions continue positively, that a similar sort of result second half this year as compared to second half '22. In Europe, seasonal conditions in the Iberian Peninsula are quite difficult. It's been in the middle of a drought. I did note overnight that there's quite a bit of rainfall in Italy. I think the F1 race was canceled. So I'm hopeful we'll let a some of that rainfall has got into places like Spain and Portugal. But the other parts of Europe to Central, North and East, positive. And as I said earlier, I think second half trading, there is also -- in line with or slightly above what we saw last year. And in North America, we're seeing an increase in acres planted. But we have seen -- I think about 50% of the crop, as I said earlier, has been planted, and we're seeing very good soil moistures, and the prospects really are for a good crop. The big difference in North America this season is that we're seeing a shift from first half to second half, and we're expecting to see purchases in sort of June, July, August for in-crop applications. And that's probably more in line with the traditional practice that we experienced, say, for example, in financial year '20. In '21 and '22, sales were brought forward as I think all touched on, customers were concerned about securing supply. Channel inventories are relatively low. So we're expecting a strong sales result in the second half. We probably will see -- to your question around margins, I think we will see some margin pressure in the second half. However, we expect EBITDA contribution to be higher in the second half than what we saw last year, really on the back of the lift in revenues. So hopefully, that gives you a bit of a summary of around the grounds.

Yes. Yes. No, that's perfect. Really appreciate that color. Maybe one for Paul, just on the working capital unwind. Firstly, thanks for the update into the dollar unwind into 16 May. But I'm just looking at Slide 15, the total unwind for the second half has traditionally or typically been around that $300 million mark. Should we be expecting a similar unwind through the second half? Is that the messaging you're trying to giving? Or will it be, I guess, above that $300 million?

I guess it really depends -- thanks, Kevin. What I did do was looked at receivables, and if we say that our receivables sort of balances, if you are going on days, if you like going back to normal levels, I wouldn't expect anywhere between $200 million to $300 million as receivable. So that's one point -- that's one aspect, if you like. That's on the assumption that the profile and collections represent what we've historically experienced. So just that caveat, but we would expect that to be. On inventory, that's the one that -- it depends. It generally just depends on the volumes, and as we've spoken about [indiscernible] more color on this is that, a lot of that volumes in our overside area, in the sense that a lot of the product is [indiscernible] and other herbicide products, which basically mean that we're carrying excess volumes. So it really depends on what that sales mix looks like in the second half. So what I did point out is that we're seeing some good signs, and it's just a bit too difficult to understand to, if you like, to be very specific on what that inventory unwind is. But we're confident on the receivables piece, given the profile that we experienced in the past. So I know that's a bit more detail, we'd expect that net working capital unwind could be anywhere between $200 million to $400 million as a guide.

Yes. Okay. All right. That's great. So at least that $600 million building receivables, that element or that part that you are confident in collecting that? Is that right?

Yes. Well, that's the thing. I think the important point we wanted to highlight is that -- and to sum that on that Slide 16, that $550 million balance at 30 September was really unusually low. If you go back in the history, and that's why we put those other halves out there, just to show what it's looked like in the past to indicate that, that $550 million is extraordinarily low, and that is really -- that $550 million to $1.2 billion, that's what's driving the net working capital movement in that -- in this -- this first half. So that was the point of that Evan, just to illustrate that, that was unusually low. And as you can see, it is -- the current balance is very typical of what we experienced last year in the first half, because when you look at the balances between the 2 and the sale, top line sales, they've moved in unison, since that we're $100 million down on revenue, and we're $100 million down in receivables balances.

Your next question comes from John Purtell.

Just had a couple of questions there. So yes, we're obviously seeing a fair bit of sort of price volatility in ag chem and a bit of a normalization in the supply side from where we were last year. So how are you sort of managing the price volatility there? Obviously, sort of glyphosate you've talked about before, but we're also seeing obviously some weakness come through for NOxes and some of the other ag chem grades. So just how does that sort of impact the business?

Yes. Well, I think the point you make is right. We've seen ag chem prices come off the highs that we experienced in 2022. But in most categories, we're now seeing a stabilization at the current levels. And you pointed out that that glyphosate has been the most volatile, and that's really fallen from around $12 at this time last year to around $4 today. So as you know, we took a provision at the 31st of March here in Australia. And as I said earlier, glyphosate sales are really running at more normal volumes for this time of the year, supported by the good rainfall that we've seen across most of the grain growing regions. And whilst it's true that margins have compressed due to the declining [ real ] price, we've not needed to take any provisions against inventories, because we're moving the inventory through with less glyphosate, with less than 60 days of cover here in Australia. So we're now in a position that we'll be restocking in coming weeks at lower prices. In North America, we're seeing increased demand and sales orders in May, and we expect, as I said earlier, that to go through to June, July. And we expect more, as in crop over the top, as you know. We have procurement arrangements in place that limit our exposure to both the upside and the downside on glyphosate. And the point, I guess, that I'd make is that, on the balance of the portfolio, in terms of margin, volumes, mix, I mean, it's really included in our forecast.

And just a second one. In terms of -- obviously, we saw a strong result there from Europe and obviously some delayed phase out of some of the products you've sort of called there, but there looks to be some evidence of some of those new product registrations and product launches coming through there?

Yes. Look, I think I'd just call, I don't know that there's been some nervousness around the portfolio and the regulatory environment in Europe. What we have seen is, we're pretty much on track with what we've called out. The next biggest molecule that we have talked about before is tebuconazole, and we highlight that in the pack. And that phase out is now being delayed to 2025. But the important point is that, the substitute product for prothioconazole will now be registered in 2024. So we'll have 12 months of handover. So basically, by the time we get to 26%, we believe that both the revenues and margins that we lose from tebuconazole will be covered by prothioconazole. So as we sit here today, we're really largely through the impact of regulatory acts in Europe and it's becoming more difficult for us to sort of really call out specifically, the contribution of the, as you would recall, the [indiscernible] products. I think the business case at the time from memory was around $100 million to $115 million of EBITDA. And I'd say that we would be delivering on that. But it's not just the core products. It's actually the mix of products that we've -- and that was part of the original business case, that we've been able to develop. So I think we're moving from this nervous expectation around Europe to being a lot more positive. And you're starting to see the narrative change. And I think probably the invasion -- Russia invading Ukraine has probably moved some of the focus back to food security. And whilst we don't believe that there's going to be a material step away from the farm to fork objectives, the reality is that those objectives were set from the average of 2015, '16, '17. So the regulators have actually made a lot of progress. I think the point is, when you look at our portfolio going forward at the moment, we're relatively comfortable that we're in a position that our portfolio now is solid, and it should start to contribute to our -- really to our earnings growth. There are some challenges around our manufacturing operations that we called out and is part of our CapEx program. Once that is complete -- then Europe sort of falls into the same category as both North America and Australia is that your growth really comes from the portfolio that you're bringing through or new products that you can either acquire or develop and deliver with technology partners. So I'm feeling a lot more comfortable about our position in Europe today than we probably were 3 years ago.

Your next question comes from Richard Johnson.

Greg, can I just go back to North America. And I'm just trying to get a sense of whether the change in buying patterns there came as any surprise to you? And I'm just really thinking about it in relation to the inventory levels, which were obviously higher than start of the year and have continued to grow. So I'm just trying to get a sense of how that all works?

Yes -- no, good question, and thanks for that. If we go back to sort of full year results, we were talking at that stage about demand being very strong in the first quarter. So specifically in October and November, because of low channel inventories and demand then for burndown products. But what then happened in December, well you had -- China really started to sort of step back from the position that they had of Net Zero in terms of COVID, and we've then started to see through December and January, we started to see supply chains and the ability to supply improve significantly. But also as a consequence, you have this fall in active ingredient prices. And that then stimulated the channel basically to stop buying. And we've seen that come really through the first half of this financial year. And typically, in North America, what happens is, it tends to be at this time of the year, where you see demand, particularly for glyphosate and herbicide products, because they get applied in crop. And what had happened in '21 and '22, is that those sales had been pulled forward, so that customers knew that they had the product. What we're actually seeing now is a move back towards more traditional practices. And I'll just repeat again, we would see -- and we are seeing much stronger demand now, as the channel starts to restock. But you got to remember that the crops are only really just being planted. So what happens is, as the crop grows and you get weed pressure, so we're really now starting to talk about May -- say, June, July, you would expect much stronger sales in June-July that will go over the top of crops. A more traditional pattern, that if you go back to 2019 and '20, that's in fact the case. I hope that answers the question?

Yes, it certainly does. That's very helpful. And then I was just -- I just took notice of the comment that was made around the value of the pipeline remaining sort of broadly unchanged to what it was, when you initially gave your aspirational targets. I mean, I haven't calculated what the burn rate has been. But I mean, is the implication of that, that those targets -- I mean, your confidence in those targets has increased, or that the even longer-term outlook is better than it would have been, when you first put them together?

Yes. And again, look, thanks for the question. There's a very detailed slide, if those that are listening in, if you can turn to that slide, that shows the pipeline multiple years, multiple segments, multiple crops. Maybe Rico can talk to what's changed since what we presented to you in November of '22, and the update that we provided at full year last year.

Yes. Thanks, Greg. So everybody return to the slide with the pipeline overview. What you'll notice is, that we -- while you have a few helpful indicators there to help you navigate through this slide. So the first one is that, around all the advancements we have made for active projects, we have put a little green chevron around the advancements. So that will indicate what was the change since we communicated the same slide in February '22. The other thing we've also done is, as we talked about in our call earlier, we have had some projects that were successfully closed, so we have removed those, because they are [ loaned ] or in the pipeline, they are actually commercial for us. And instead, we've added a few more. And the new ones, we have put a little asterisk and also a green star on the right side, that will help you navigate through the slide and see what's new in there. We've also updated some of the launches based on what we've seen, and you'll notice that some of them, we have actually anticipated launches. So that's all very positive news. I just want to highlight one thing, which is that we've always said that -- these projects are only a selection of the projects we have. It's not our complete pipeline. In fact, we have more products than we're showing on this slide. We highlighted that during the Investor Day in 2022, and I'm reemphasizing that now. So I hope that helps answer your question?

It does. Thanks very much. I don't know if Brent's still there, but I've got a couple of easy ones on seeds. I'm just wondering what the impact of FX was on your results in the first half? And then secondly, could you just remind me or talk a little bit about the seasonality of the business?

Sure. Yes. In our business, FX doesn't play much of a factor, because we are in multiple geographies and because we have a very strong business based in Australia. So it really doesn't have much impact in terms of -- when you look at constant currency analysis. So that's, I think, the first part of your question, Richard. The second one, in terms of seasonality, because we grow spring crops in the Northern Hemisphere and winter crops in the southern hemisphere, we are very weighted to the first half. But that continues to be the case for a lot of our core seeds business. We still have more season to go really in the first couple of months of our second half, and we've continued to have pretty strong trading results in the last 6 weeks. And then as I think we called out -- the other thing that's starting to change, of course, is that our Omega-3 and bioenergy businesses are becoming more year-round businesses. So we're starting to see a little bit more contribution coming from those into the second half. So we're still going to be fairly heavily weighted to the first half. But as Greg called out, we'll probably have -- expect to have a slightly stronger second half than we had a year before.